“We want[ed] to disrupt the traditional grocery chain model and show consumers that there is a better way to cook with fresh, seasonal ingredients” – Matt Salzberg [HBS 2010], founder and CEO, Blue Apron
Many would know Blue Apron for its innovative business idea in the meals-commerce segment. However, its meteoric rise (valuation of ~$2Bn in <4 years) in the food-tech space has been powered as much, if not more, by its well-aligned operating model as by its business idea.
At the core, Blue apron is in the business of meal kit subscriptions. It offers pre-portioned farm-fresh ingredients delivered to doorstep on-demand, for cooking ‘original’ recipes (it created), all at $10 per meal. More broadly, Blue Apron is an experience of dawning the chef hat and preparing and eating exotic meals conveniently. In October 2015, Blue Apron served 5M+ meal kits, 10x of what it served exactly 18 months back.
Fundamental to Blue Apron’s meteoric rise is its strong operating model focusing on:
- Original non-repeat menu: Blue Apron operates a ‘no-repeat’ menu model to deliver an exotic meal experience. It sources new recipes both in-house and as well as through external partnerships. It recently partnered with Top Chef competition to source exotic, winning recipes. To source recipes in-house, Blue Apron follows a rigorous process. First, the recipe team brainstorms culinary ideas, bringing inspiration from restaurants, cookbooks, etc. Once an idea is shortlisted, it is tested through a simulated cooking experience at a house kitchen. A recipe is picked or dropped depending on the time, skills and tools required to prepare it. This process has generated 800+ original recipes over past 3 years.
- Vertically integrated sourcing: Exotic recipes call for exotic ingredients. To source quality, seasonal ingredients, Blue Apron has integrated vertically to buy directly from farms and family-run purveyors. It ordered 3 million pounds of produce from 100 family-run farms past summer. By by-passing the middlemen, Blue Apron has direct access to better quality and fresher ingredients. Besides, the vertical integration reduces costs (commission paid to middlemen). Blue Apron passes on these savings to customers.
- In-house fulfillment centers: Blue Apron has 3 fulfillment centers, one each at NJ, CA and TX. At these centers, fresh raw materials cultivated at nearby farms are loaded. Using it’s flexing packaging process designed in-house, employees portion and package varying amounts of ingredients depending on the week’s recipe. Once individual ingredients are portioned and packaged, they are paired together by meals in Blue Apron boxes and distributed to nearby cities. Blue Apron attempts to mimic this entire process from farm to consumer as Just-in-Time. The flexible portioned packaging and JIT enables 2 key consumer experiences – fresher ingredients and lesser wastage (cost reduction) – compared to consumers attempting the same process from a nearby grocery story. Further, by keeping fulfillment in-house (against outsourcing), Blue Apron better controls these key end-consumer experiences.
- Use of technology: Blue Apron effectively leverages technology across both front-end and back-end to deliver enhanced consumer experiences. At the front-end, Blue App has a simple app that acts as a user’s cooking companion. A consumer can place order, see detailed recipes, check video tutorials, get tips and use a cooking stopwatch through this app. Additionally, the app has a social media sharing option with Instagram-like filters to enable consumers to share pictures of their meals. Essentially, the app enables end-to-end meal experience, right from cooking, to eating, to photographing, to sharing. Besides, the app provides useful customer data points to understand what recipes worked and allows Blue Apron to close the loop with the customer. At the backend, Blue Apron uses a homegrown warehouse management software to track order flow and productivity, to manage its JIT operation. It has also invested in algorithms that help predict a recipe’s popularity, which can help in making better sourcing decisions.
Conclusion: Blue Apron is tapping the latent demand for convenient meal alternatives through its innovative business model and strong operating fundamentals. It recently extended its offerings beyond meals to wines. If it continues to grow at the same pace and connect consumers more effectively (in quality, cost and convenience) with farms, it can challenge the existence of grocery stores and will be well-positioned to take a significant pie of the huge $1.1Tn food industry!